Advanced Search
MyIDEAS: Login to save this paper or follow this series

Contract Renegotiation and Organizational Design

Contents:

Author Info

  • Michel Poitevin

    ()

Abstract

This paper studies the implications of non-commitment for organizational design. An organizational form must trade-off between the coordination benefits associated with the centralization of information and its associated costs in terms of renegotiation. This analysis makes precise what these benefits and costs are. First, I characterize renegotiation-proof allocations for organizational forms that differ in the amount of decentralization that they support. Second, I compare these different organizational forms. The analysis shows that a complete decentralization of decision-making is always weakly dominated by more centralized structures when information is dispersed in the organization. Decision-making should always be in the hand of the player with the most important or relevant information. Ce papier étudie les implications pour la structure organisationnelle des problèmes de non-engagement. Une structure organisationnelle adéquate permet l'arbitrage entre les bénéfices et les coûts associés à la centralisation de la prise de décision. Parmi les bénéfices, on retrouve une meilleure coordination des informations des membres de l'organisation; parmi les coûts, on retrouve les inefficacités reliées aux difficultés d'engagement et à la renégociation. L'analyse démontre qu'une décentralisation complète est toujours faiblement dominée par une structure plus centralisée. Finalement, la prise de décision doit être conférée aux agents ayant l'information la plus cruciale pour la performance de l'organisation.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.cirano.qc.ca/pdf/publication/95s-03.pdf
Download Restriction: no

Bibliographic Info

Paper provided by CIRANO in its series CIRANO Working Papers with number 95s-03.

as in new window
Length:
Date of creation: 01 Jan 1995
Date of revision:
Handle: RePEc:cir:cirwor:95s-03

Contact details of provider:
Postal: 2020 rue University, 25e étage, Montréal, Quéc, H3A 2A5
Phone: (514) 985-4000
Fax: (514) 985-4039
Email:
Web page: http://www.cirano.qc.ca/
More information through EDIRC

Related research

Keywords: Asymmetric information; Contract renegotiation; Organizational form; Decentralization; Information assymétrique ; Renégociation de contrats ; Structure organisationnelle ; Décentralisation;

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Beaudry, Paul & Poitevin, Michel, 1993. "Signalling and Renegotiation in Contractual Relationships," Econometrica, Econometric Society, Econometric Society, vol. 61(4), pages 745-82, July.
  2. Milgrom, Paul R., 1987. "employment contracts, influence activities and efficient organization design," Department of Economics, Working Paper Series, Department of Economics, Institute for Business and Economic Research, UC Berkeley qt6pf6c5j6, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  3. Laffont, Jean-Jacques & Martimort, David, 1994. "Separation of Regulators against Collusive Behavior," IDEI Working Papers 44, Institut d'Économie Industrielle (IDEI), Toulouse.
  4. Greenwood, Jeremy & McAfee, R Preston, 1991. "Externalities and Asymmetric Information," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 106(1), pages 103-21, February.
  5. Hart, Oliver D & Tirole, Jean, 1988. "Contract Renegotiation and Coasian Dynamics," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 55(4), pages 509-40, October.
  6. Drew Fudenberg & Jean Tirole, 1988. "Moral Hazard and Renegotiation in Agency Contracts," Working papers 494, Massachusetts Institute of Technology (MIT), Department of Economics.
  7. Paul Milgrom & Nancy L.Stokey, 1979. "Information, Trade, and Common Knowledge," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 377R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  8. Melumad, Nahum & Mookherjee, Dilip & Reichelstein, Stefan, 1992. "A theory of responsibility centers," Journal of Accounting and Economics, Elsevier, Elsevier, vol. 15(4), pages 445-484, December.
  9. Mathias Dewatripont, 1988. "Commitment through renegotiation-proof contacts with third parties," ULB Institutional Repository 2013/9569, ULB -- Universite Libre de Bruxelles.
  10. Paul Beaudry & Michel Poitevin, 1995. "Contract Renegotiation: A Simple Framework and Implications for Organization Theory," Canadian Journal of Economics, Canadian Economics Association, vol. 28(2), pages 302-35, May.
  11. Laffont, Jean-Jacques & Tirole, Jean, 1990. "Adverse Selection and Renegotiation in Procurement," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 57(4), pages 597-625, October.
  12. Myerson, Roger B, 1979. "Incentive Compatibility and the Bargaining Problem," Econometrica, Econometric Society, Econometric Society, vol. 47(1), pages 61-73, January.
  13. Maskin, Eric & Tirole, Jean, 1992. "The Principal-Agent Relationship with an Informed Principal, II: Common Values," Econometrica, Econometric Society, Econometric Society, vol. 60(1), pages 1-42, January.
  14. Dewatripont, Mathias, 1989. "Renegotiation and Information Revelation over Time: The Case of Optimal Labor Contracts," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 104(3), pages 589-619, August.
  15. Holmstrom, Bengt & Myerson, Roger B, 1983. "Efficient and Durable Decision Rules with Incomplete Information," Econometrica, Econometric Society, Econometric Society, vol. 51(6), pages 1799-819, November.
  16. Guesnerie, Roger & Laffont, Jean-Jacques, 1984. "A complete solution to a class of principal-agent problems with an application to the control of a self-managed firm," Journal of Public Economics, Elsevier, vol. 25(3), pages 329-369, December.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Theilen, Bernd, 2009. "Decentralization and the Gains from Monitoring," Working Papers 2072/42863, Universitat Rovira i Virgili, Department of Economics.
  2. Caillaud, B. & Jullien, B. & Picard, P., 1996. "Hierarchical organization and incentives," European Economic Review, Elsevier, vol. 40(3-5), pages 687-695, April.
  3. Jonathan Treussard, 2005. "Life-Cycle Consumption Plans and Portfolio Policies in a Heath-Jarrow-Morton Economy," Boston University - Department of Economics - Working Papers Series, Boston University - Department of Economics WP2005-033, Boston University - Department of Economics.
  4. Te Bao & Yongqin Wang, 2012. "Incomplete contract, bargaining and optimal divisional structure," Journal of Economics, Springer, Springer, vol. 107(1), pages 81-96, September.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:cir:cirwor:95s-03. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Webmaster).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.